12. Short-term financing Why use short-term financing? Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages. The following statement identifies a possible characteristic of short-term financing. Consider this case: Short-term loans usually have lower cost than long-term loans. Identify whether the preceding statement is true or false. This statement is true and an advantage of short-term financing. This statement is false and a disadvantage of short-term financing. Commercial paper Trade credit able to identify the short-term Firms use a variety of short-term financing sources to support working capital. Use the financing source. Accruals Revolving credit agreement Secured loan irce Description A formal, committed line of credit extended by a bank or other lending institution An obligation backed by collateral, often inventories or accounts receivable